By Natalie Hughes
It’s without doubt that the global economy continues to reel from the effects of stay-at-home and pandemic restrictions around the world. In the U.S. alone, countless retail giants have been forced into bankruptcy, commercial real estate has been permanently impaired, and the Federal Funds Rate has plummeted. Unfortunately, those misfortunates are transpiring on an international scope as well. However, recent reports of budding Merger & Acquisition activity demonstrate some promise for potential revitalization. While certain sectors and fiscal statistics like the ones mentioned may take more time to recuperate, there remains hope for global M&A. Activity hit a record $1.3 trillion this past quarter and has shown the strongest start to the year in three decades. Not only is this figure the largest of any Q1 ever, but it’s also the second-largest of any quarter in world history. Additionally, the value of impending and completed deals jumped 93% from Q1 of 2020 while the total number of deals increased 9%.
Strong M&A statistics of early 2021 emphasize the rebound in dealmaking activity after it had plummeted just over a year ago in the early days of the pandemic. Cary Kochman, co-head of global mergers and acquisitions at Citi stated, “The rebound from a year ago is more dramatic than anything we’ve ever seen in M&A recovery — full stop,” Furthermore, the rush of recent deals has brought in over $37 billion in fees to investment banks, making it their most profitable quarter ever. This strong start has been driven by various sizable deals, like General Electric’s $30 billion agreement to sell its aircraft-leasing sector and Apollo Global Management’s decision to merge with Athene Holding, a life insurance company that originated during the financial crisis.
As companies and investment firms rush to get ahead of consumers’ “new normals” and new ways of life, it seems that M&A is the ideal and most effective way to do so. The combination of a booming stock market, extremely low borrowing costs driven by the Federal Reserve, and investors’ desire to make up for lost time indicates that expanding and integrating is too promising to resist. Dealmaking has surged in almost all sectors of the economy, with tech coming in on top as it positions for big revamping in cloud computing as propelled by the shift to virtual working environments.
While the past quarter has shown such promising growth, the current momentum may be experiencing a slowdown soon. The SEC aims to amp up its oversight and it’s uncertain as to whether or not activity of special purpose acquisition companies (SPACs, which accounted for 28% of dealmaking this past Q1) will remain strong. In the past week alone, four major deals have been postponed as a result and several IPOs were priced low. While this fickleness may be partly due to bankers catching up on stacks or work or enjoying their Easter weekend, the next few weeks will play a crucial role in determining if the global M&A momentum continues.